Macro Extremes (week ending December 23, 2022)

A weekly Macro, Cross Asset review of prices trading at extremes which may generate future investment ideas and opportunities  

The following assets (on a weekly timeframe) registered an Overbought or Oversold reading and/or have traded more than 2.5 standard deviations above or below its rolling mean.

Extremes “above” the Mean (at least 2.5 standard deviations)

Cocoa

Sugar

Overbought (RSI > 70)

German 2 and 5 year government bond yields

Cattle

Istanbul’s BIST Index

The Overbought Quinella – Both Overbought and Traded at > 2.5 standard deviations above the weekly mean)

Japanese 10 year bond yield

Extremes “below” the Mean (at least 2.5 standard deviations)

U.S. 10 year bond yield minus German 10 year bond yield spread

Palladium

AUD/JPY

Oversold (RSI < 30)

Hot Rolled Coil Steel (HRC)

The Oversold Quinella – Both Overbought and Traded at > 2.5 standard deviations above the weekly mean)

None

Notes & Ideas:

We saw a sensible (all things considering) week for equities.

In last week’s edition, I wrote “I’m watching the Bovespa and the weaker Real”…

The Bovespa bounced 6.7% for the week, following last week’s Oversold reading and the Brazilian Real rose 2.8% over the week versus the USD.

Bond yields mainly rose and overall they remain notably above their 200 week moving average.

For some context (of the losses which have occurred in the bond market), the 200 week moving average for the German 10 year bond yield is 0.04%, while the bond is today trading at 2.41%.

Mean reversion predictions aside, this means that for a few years, the mean yield was hovering around 0.00% (and negative). The magnitude of the drawdown of capital is extraordinary.

The U.S. 5 year yield minus U.S. 3 month bill yield spread isn’t oversold anymore.

In commodities, gases were down and the petroleums were up, in size.

The Baltic Dry Index continues its rise, now up 34% in the past 5 weeks.  

Coffee has climbed 11% since the 6 weeks it appeared as oversold in this periodical.

Palladium hits a new 52 week low, again.

Hot Rolled Coil Steel remains Oversold for the 26th consecutive week,

The CRB Index still has more downside work (or convergence) towards reverting to its mean.

And the AUD/GBP posted a bullish outside reversal week.

The larger advancers over the past week comprised of;

Baltic Dry Index 5.8%, Brent Crude 6.7%, Cocoa 6.2%, WTI Crude Oil 6.9%, Gasoil 2.4%, Lean Hogs 2.4%, Heating Oil 4.7%, Coffee 4.6%,  Platinum 3%, Gasoline 11.8%, Sugar 4.4%, CRB Index 2.5%, Cotton 4%, Silver in AUD 1.8%, Silver in USD 2.2%, Corn 2%, Oats 7.4%, Rice 8.1%, Wheat 3%, S&P GSCI 3%, KBW Banking Index 1.7%, IBEX 1.9%, BOVESPA 6.7%, Helsinki 2%, FTSE 100 1.9% and Istanbul’s BIST climbed 4.5%

The group of decliners included;

Rotterdam Coal (2%), China Coal (3.9%), HRC Steel (2.1%), JKM KNG (21%), Natural Gas (23.1%), Orange Juice (2.9%), Rubber (2.7%), Dutch TTF Gas (28.1%), Urea (5.5%), Shanghai (3.6%), CSI 300 (3.2%), Nasdaq Composite (1.9%), Nikkei 225 (4.7%), Nasdaq 100 (2.3%), Nifty (2.5%), SOX (3.8%), TAIEX (1.8%), while the S&P 500 eased a mere 0.2%, the ASX 200 retreated 0.6% and the ASX Small Caps declined 1.2%.

December 24, 2022

by Rob Zdravevski

rob@karriasset.com.au